Why its so hard for Americans to save for retirement

Did you know the original purpose of the 401(k) plan was to supplement retirement income? And that originally such plans we’re supposed to be simple.

Today if a worker doesn’t have a plan at work, most don’t save for retirement and even with a work-based plan it takes auto enrollment to get many to sign up. Despite several types of savings vehicles, it’s generally assumed there is a lack of retirement saving tools and thus people don’t save.

Not true. People don’t save because they can’t see the future and they set their standard of living for necessities and non-necessity spending before saving 🤑🤑🤑 and that’s the truth for the vast majority of Americans.

I think another issue is that people do not understand the power of compounding. Even when you believe, sometimes it hard to keep your faith. It seem like the first 20 years, I barely saw my money grow. $10k even with 8% grow which I rarely saw only gained $800 per year. Then as my 401K reached 6 figures, the market swings caused several thousand dollars swings daily causing heartburn. Now after 30 years, it may swing $10k over a course of a month and I am still a believer in compounding. I kept my cool and get to retire early.

When young people are told that they need $1 to $2 million to retire and only see $800 in growth, they give up before they even start. With less than 1% in passbook savings for the last decade, kids rather live for today. For my whole life I have been told social security is going broke, don’t count on it. I figured I would have to work until I die. But I got lucky with a pension and saved enough in my 401K that I’ll make more money not working.

I don’t know how my son will get to retire. My hope is that when I die that there will be enough money for the grandchildren for seed money toward their retirement in their early working years.

There is a big difference between simply saving as in an emergency fund and investing for retirement. You cannot truly save for retirement without the growth in stocks and some bonds. I retired seven years ago. My 401k is now higher by 34% than it was in 2010 AFTER taking three minimum distributions. If I hadn’t been forced to take those it would be 50% higher and that’s with 50% of the account invested in fixed income funds.

With less than 1% interest being paid on passbook savings accounts, most do not see even short term saving for a major purchase as a worthwhile activity, let alone saving for retirement 40 years away. The average worker making less than $30,000 per year, with the cost of living in 2017, not very much if anything is left to save. I have never been a long term saver, short term I have saved to pay cash for a car. I have never had more than $25,000 per year income, at 62 next Jan, with a military pension and SS I will have $34,000 per year. I will now be able to invest a few thousand per year, have zero debt and pay cash for everything.